Confidence rather than rates driving funding appetite reveals Atom bank SME Pulse survey

03 July 2024

Almost two thirds of commercial brokers seeing growing interest from SME clients

Business confidence top factor behind borrowing demand, ahead of lender appetite

Brokers seeing greater interest from start ups but finding funding far from straightforward

Improving confidence among business leaders is the primary factor in growing demand from SMEs for external funding, the ‘SME Pulse’ survey for Q2 2024 from Atom bank has revealed.

The quarterly poll of commercial brokers by Atom bank found that the appetite for external funding continues to grow, with almost two thirds (63%) of brokers stating that they were seeing a growing interest from SME clients, up marginally from the last quarter. Indeed, the vast majority (84%) of brokers said they were seeing an increase in business confidence, with inflation falling and the expectation of base rate reductions in the months ahead.

Confidence among business leaders is the biggest driver for that rising demand, pinpointed by the majority (65%) of advisers, moving up from second place in the previous quarter.

This was followed by greater appetite from lenders (37%), increased costs (28%) and more product options (26%).

By contrast lower interest rates dropped from top in Q1 to fifth, cited by just 16% of intermediaries.

The main reason for borrowing remains purchasing a property, accounting for almost half (44%) of responses. More than one in four (28%) were raising funds in order to refinance existing debt, while a fifth (21%) of SME borrowers had turned to external financing to help fund growth and business expansion.

Worsening accessibility

Respondents to the SME Pulse survey also suggested that it has become more difficult for their clients to obtain finance over the quarter.

Almost one in three brokers said they are currently finding it difficult to access financing on behalf of their clients (31%), up by 8% on the previous survey.

According to individual responses from brokers, lenders tightening up criteria, being more in-depth with underwriting and overpricing comparative to risk were all contributing to these accessibility challenges.

While 69% of intermediaries said they were not seeing issues, it nonetheless means a substantial number of prospective clients are experiencing problems in securing the finance they need.

Challenges for start-ups

Figures from Companies House show that the first quarter of this year saw record numbers of new businesses registered, and this is translating into greater demand from start-ups for funding.

Three in five (60%) brokers responding to the Atom bank Pulse reported seeing a spike in interest from new businesses in accessing external funding, demonstrating the ambition of those running these SMEs in pushing on with their ambitions.

However, many brokers noted that actually accessing that funding can be tricky, with a lack of lenders who will even consider start ups. High street banks were cited by a number of respondents as being particularly difficult to use for new businesses.

David Castling, head of intermediary distribution at Atom bank, commented:

“It’s really encouraging to see a further increase in the number of brokers seeing growing demand from SMEs for external funding. It’s clear that business owners are feeling more confident about their prospects for the future, and want to push on with their growth plans and establish themselves for the future. Notably, lower interest rates are reducing in importance for borrowers - it’s their confidence and keenness to grow that is driving activity, rather than the cost of funds.

“Access to much needed funds remains a concern, however. Growing numbers of brokers are finding it harder to arrange finance for their clients, a situation that can be more pronounced for start-ups rather than those with a long track record. It is crucial that brokers work with lenders who see the bigger picture and will consider their SME clients on their true merits, irrespective of how long they have been in business.”